Why are fiat/banks destined to fail and bitcoin to succeed? Explain.

[Fugger]

Bitcoins have been around since 2009, a 1/4 of the Euro's lifespan

That's a rather ridiculous comparison. € was introduced (enforced) top-down and large-scale. BTC has to grow bottom-up by grassroots effort.

Which could make it more stable if it succeeds. And if Bitcoin does succeed, it takes longer than if "introduced (enforced)" top-down.

Generally, I don't think Bitcoin will completely replace fiat currencies. I think it could be large in areas where it is advantageous. But in some areas other alternatives (such as fiat currencies or other digital currencies) will remain successful or will rise. Same with banks. For some services banks might be here to stay (advisory for instance, but then they don't deserve the name "bank" anymore). For many other financial services I am convinced that specialized Bitcoin companies will take over the old banks.

[johnyj]

Fiat worth something because people have no other alternative payment medium, now there is bitcoin, people will comapre the two, and  they will realize that bitcoin will not let their wealth stolen by politicians and bankers

Just look at the U.S. national debt since gold standard abolished


Things are quite desperate on the top level for many countries, just normal people don't feel it, this is the biggest problem for today's social structure: Government is the single point of failure, if they become insolvent, then almost everything in the society will fail in a very short time. Bitcoin provided a way to diversify such risk

[xavier]

Ok , tl;dr for most of this thread. To answer the OP's questions, that have btw been answered 1000 times already on these forums I'm sure. But anyway.

First of all, the idea of an anonymous decentralized e-cash system was not Satoshi's. This idea has been around for a long time.

Secondly, bitcoin is the only anonymous decentralized e-cash system that has gained traction online - and has not been hacked or anything. This is really the genius of Satoshi, it's in the design & implementation of the idea, not the idea itself.

Thirdly, most of OP's points are due to the currency not having gained enough traction. It takes a critical mass to adopt it before it really gets proper usage. We are only in year 5 of bitcoin - that's very early indeed.

Fourthly, a general rant about the gold standard. It is a sign of our times that every politcian or central banker seems to agree that the gold standard was a useless invention and bad economics. NO! The gold standard is what we should be using 90% of the time. Of course, the late 1920s/early 1930s are ALWAYS cited as an excuse as to why the world came off the gold standard. NO again! The gold standard should be used 90% of the time, because it enforces fiscal discipline. This is EXACTLY why politcians don't like it and eventually moved off it. Occasionally I believe, as in the 1930s, there is a case for moving away from the gold standard - for example, in a deflationary spiral. However, it should be reapplied ASAP to prevent exactly the type of crisis we are in now.

Remember in some eras of history, there are dogmas that everybody believes no matter what, even though there is NO logical reason behind it? Like a couple hundred years ago, when everybody believed the world was flat? Or when people believed in creatonism? Or when they believed that women or non-white races were inferior. Etc. Well, the dogma of our age is that we believe that politicians and central bankers can dictate and control the money supply and the economy.

It is unbelievable to hear Bernanke say that countries are not subject to the same fiscal discipline as, say, a company - and can carry on borrowing and running up debt indefinitely. This is INCREDIBLE to hear an educated person saying this, let alone the Fed chairman. To me, it's like somebody saying that 2+2 = 5. But this is exactly what he said in his press conference last week.

If there's one good thing that will come from this period in history, it's that fiat money is ALWAYS a disaster, politicians CANNOT be trusted to manage the economy (or be trusted with pretty much anything), and that the gold standard is the ONLY thing worth using. Unfortunately, as is common in human history, we are going to learn this lesson the hard way. A VERY hard way.

Where does bitcoin come in? Well this is the `economics` section, so please excuse me for ranting on about the economy. However, bitcoin has all the properties of gold - that made people trust gold as an ultimate store of value - but it has even more properties - such as, it is totally digital, transferred instantly to anybody worldwide, easy to store. In short, it was specially designed as a store of value, as a global currency. Gold was not.  So it is totally logical to accept that one day bitcoin will replace gold as the monetary standard. Furthermore, if fiat currencies collapse, it is also totally logical to accept that bitcoin will replace them - because it is a technologically better substitute for gold, as already discussed.


* I am borrowing some things here from some Peter Schiff videos on YouTube admittedly. But I totally agree with what he says, I think he is really spot on about the economy. He is a little crazy though and he comes across as trying to constantly pump up his own investment firm, so I think many people don't trust him - which is a shame.

[domob]

Fourthly, a general rant about the gold standard. It is a sign of our times that every politcian or central banker seems to agree that the gold standard was a useless invention and bad economics. NO! The gold standard is what we should be using 90% of the time. Of course, the late 1920s/early 1930s are ALWAYS cited as an excuse as to why the world came off the gold standard. NO again! The gold standard should be used 90% of the time, because it enforces fiscal discipline. This is EXACTLY why politcians don't like it and eventually moved off it. Occasionally I believe, as in the 1930s, there is a case for moving away from the gold standard - for example, in a deflationary spiral. However, it should be reapplied ASAP to prevent exactly the type of crisis we are in now.

I agree with you that the gold standard (or systems like it, e. g. Bitcoin) are good as basis of the money.  However I'm not exactly sure how you think that switching off the gold standard for 10% of the time is going to work.  Do you mean that during such a time (deflationary spiral as you mentioned it) the money supply may get inflated beyond the gold backing?  But if you do this, how can you ever get back to a full backing - only by devaluing your currency at the end of this period with respect to the amount of gold you can get for a bank note, right?  IMHO this defeats the whole point of a gold standard in the first place - as soon as people realize their money got worth less (in gold) even though they were promised it is backed by some fixed amount, won't they just stop using it and hold gold?

Like a couple hundred years ago, when everybody believed the world was flat? Or when people believed in creatonism?

Nitpick:  Even though this is commonly cited, it is not true that people in the Medieval Age believed the world to be flat.  Already the greeks knew it is not.  The misconception of those times was that it is the center of the universe.  Also, I'm sure still today a lot of people believe in creationism - especially in the modern center of the developed world, aka US, one hears....

[J603]

The idiot troll arrives to talk "Economics", demanding explanations, lol.   

.... day late and a dollar short? train left the station without you.

I am a troll? What argument do you have against what I said? It seems like the common argument against anyone who goes against bitcoins is that they are just trolling. And I'm not even against bitcoins. I'm buying as much as I can, and I use them to purchase things. But I also recognize bitcoin's flaws, and I think that until everyone recognizes them bitcoin will never be mainstream. I also think that the currency can't stay stable with this kind of mentality. People want bitcoins to increase in value exponentially, but this type of instability is good for no one but the few people who got in early.

The fact is, no matter what might happen, Bitcoin is nowhere near as successful as any of the supposed "failing" fiat currencies. Maybe in a 100 years it will be just as successful, but none of us are going to live that long. The bitcoin economy isn't as big as a single fiat currency. It also isn't nearly as stable. The value of a bitcoin fluctuates constantly, and prices change to reflect it. What if one day you went to the grocery store and everything was twice as expensive because the price of bitcoins plummeted? The average person will never agree to that kind of system.

[Weyland Corp]

The idiot troll arrives to talk "Economics", demanding explanations, lol.   

.... day late and a dollar short? train left the station without you.

I am a troll? What argument do you have against what I said? It seems like the common argument against anyone who goes against bitcoins is that they are just trolling. And I'm not even against bitcoins. I'm buying as much as I can, and I use them to purchase things. But I also recognize bitcoin's flaws, and I think that until everyone recognizes them bitcoin will never be mainstream. I also think that the currency can't stay stable with this kind of mentality. People want bitcoins to increase in value exponentially, but this type of instability is good for no one but the few people who got in early.

The fact is, no matter what might happen, Bitcoin is nowhere near as successful as any of the supposed "failing" fiat currencies. Maybe in a 100 years it will be just as successful, but none of us are going to live that long. The bitcoin economy isn't as big as a single fiat currency. It also isn't nearly as stable. The value of a bitcoin fluctuates constantly, and prices change to reflect it. What if one day you went to the grocery store and everything was twice as expensive because the price of bitcoins plummeted? The average person will never agree to that kind of system.

It seems you aready one step ahead of us all you seem to know everything.

So now i have a question for you: why did you buy bitcoins

[J603]

The idiot troll arrives to talk "Economics", demanding explanations, lol.   

.... day late and a dollar short? train left the station without you.

I am a troll? What argument do you have against what I said? It seems like the common argument against anyone who goes against bitcoins is that they are just trolling. And I'm not even against bitcoins. I'm buying as much as I can, and I use them to purchase things. But I also recognize bitcoin's flaws, and I think that until everyone recognizes them bitcoin will never be mainstream. I also think that the currency can't stay stable with this kind of mentality. People want bitcoins to increase in value exponentially, but this type of instability is good for no one but the few people who got in early.

The fact is, no matter what might happen, Bitcoin is nowhere near as successful as any of the supposed "failing" fiat currencies. Maybe in a 100 years it will be just as successful, but none of us are going to live that long. The bitcoin economy isn't as big as a single fiat currency. It also isn't nearly as stable. The value of a bitcoin fluctuates constantly, and prices change to reflect it. What if one day you went to the grocery store and everything was twice as expensive because the price of bitcoins plummeted? The average person will never agree to that kind of system.

It seems you aready one step ahead of us all you seem to know everything.

So now i have a question for you: why did you buy bitcoins

Because I see them as a good investment- not because I believe that it will replace fiat (it won't) but because it will hopefully increase in value, at least for a short period of time. Although seeing as major exchanges are either being discontinued or getting more restrictive (at least to US customers), I'm not so sure.

I don't have anything against bitcoins. I just want to know why pretty much everyone on these forums is so sure that it will replace fiat. There have been people here that have, completely seriously, told me and others to invest everything in bitcoins. That is a very risky maneuver, but it seems as though it's one a lot of people are willing to take.

Like I said before, I also don't think that the rampant fervor for bitcoins is positive. Some people on here are almost religious when it comes to bitcoins. Why are they so great? The main arguments are decentralization and deflation. But I fail to see how bitcoins are decentralized when a small amount of people control the majority of the bitcoins (just like with fiat!). The mining pools also have considerable influence. Deflation is not always positive. Stability is much more beneficial than either inflation or deflation.

I just want to know as much as I can about the bitcoin economy before I make a serious investment. So far, I feel like idealism drives the market quite a bit as opposed to rational thought, and this is worrisome. It seems to cause instability in the market unheard of in any other currency.

[crumbs]

...Just look at the U.S. national debt since gold standard abolished [loosely exponential chart]
...

What exactly does US national debt mean to me, Joe consumer?  My standard of living hasn't gone down as the debt has gone up.  It's in no one's interest to call in the debt.  What do you see happening in case US defaults?  
People are impressed by exponential charts -- "unsustainable" is a word often used.  Population growth is exponential -- economy has to grow on an exponential curve *just to keep even* with human population.  You like scary charts?  Here:

Match this with economy predicated on linear growth.

Someone in this thread mentioned that the history of fiat is a history of failure.  By that measure, the history of *everything* is a history of failure.  Gold-backed currency, in particular.  As extinct today as the dinosaur.  

The doomsday prophets of this forum, the ones prognosticating the end of fiat, back up their soothsaying with examples of economic failure.  How absurd to assume, then, that exchanging one currency for another would somehow solve the problem.  Economic collapse is not undone by swapping bad money for good.
 

[meanig]

What exactly does US national debt mean to me, Joe consumer?  My standard of living hasn't gone down as the debt has gone up.  

Are you a baby boomer by any chance? Because if not I'd be surprised if your standard of living hasn't been negatively effected by increasing debt levels.

[crumbs]

What exactly does US national debt mean to me, Joe consumer? My standard of living hasn't gone down as the debt has gone up.  

Are you a baby boomer by any chance? Because if not I'd be surprised if your standard of living hasn't been negatively effected by increasing debt levels.

Not a baby boomer, and doing just fine thus far.  Am i bucking the trend, and what makes you think the national debt is a factor?  Also, what will happen to the debt if we switch to bitcoin?  Wouldn't it be smarter to crank up the presses & pay off our dollar-denominated debt?

[xavier]

Fourthly, a general rant about the gold standard. It is a sign of our times that every politcian or central banker seems to agree that the gold standard was a useless invention and bad economics. NO! The gold standard is what we should be using 90% of the time. Of course, the late 1920s/early 1930s are ALWAYS cited as an excuse as to why the world came off the gold standard. NO again! The gold standard should be used 90% of the time, because it enforces fiscal discipline. This is EXACTLY why politcians don't like it and eventually moved off it. Occasionally I believe, as in the 1930s, there is a case for moving away from the gold standard - for example, in a deflationary spiral. However, it should be reapplied ASAP to prevent exactly the type of crisis we are in now.

I agree with you that the gold standard (or systems like it, e. g. Bitcoin) are good as basis of the money.  However I'm not exactly sure how you think that switching off the gold standard for 10% of the time is going to work.  Do you mean that during such a time (deflationary spiral as you mentioned it) the money supply may get inflated beyond the gold backing?  But if you do this, how can you ever get back to a full backing - only by devaluing your currency at the end of this period with respect to the amount of gold you can get for a bank note, right?  IMHO this defeats the whole point of a gold standard in the first place - as soon as people realize their money got worth less (in gold) even though they were promised it is backed by some fixed amount, won't they just stop using it and hold gold?

Like a couple hundred years ago, when everybody believed the world was flat? Or when people believed in creatonism?

Nitpick:  Even though this is commonly cited, it is not true that people in the Medieval Age believed the world to be flat.  Already the greeks knew it is not.  The misconception of those times was that it is the center of the universe.  Also, I'm sure still today a lot of people believe in creationism - especially in the modern center of the developed world, aka US, one hears....

Sure. I accept this, sorry my factual knowledge is not totally there. Probably there are some people who believe the world is flat today, but the point is it's not universally accepted.


RE: gold? Well this is just my personal idea. It's not backed up by any economic theory. The point of the gold standard is that it control the monetary balance, right? It's impossible for governments to run up a deficit with the gold standard. If they spend like crazy, they just loose all their monetary supply / gold. In this case, they experience a huge deflation and have to take their currencies off the gold standard. This is what happened in the 1920s/1930s - in my understanding. What I'm arguing is that, if this were to happen, then a government would have a legitimate case to come off the gold standard - to prevent a deflationary spiral, which is when consumers don't spend -> businesses make falling profits -> businesses fire staff -> consumers don't spend .... It's a feedback loop. To break this, sure - it would be necessary to come off the gold standard. So, the gold standard is not completely perfect. However, what I'm arguing is that the consequences of *not* using the gold standard are 10x worse than using it. At least, a deflationary scenario *can* be fixed, and does prevent governments from taking on debt after a certain point. It also alerts them and the population to the problem. So, it has a preventative effect against running up huge debts.

...Just look at the U.S. national debt since gold standard abolished [loosely exponential chart]
...

What exactly does US national debt mean to me, Joe consumer?  My standard of living hasn't gone down as the debt has gone up.  It's in no one's interest to call in the debt.  What do you see happening in case US defaults?  
People are impressed by exponential charts -- "unsustainable" is a word often used.  Population growth is exponential -- economy has to grow on an exponential curve *just to keep even* with human population.  You like scary charts?  Here:

Match this with economy predicated on linear growth.

Ahhh. Yes, of course it's not so simple. You see, you missed out the graph showing an exponential increase in human technology and innovation, and therefore an exponential decrease in the use of natural resources by each individual person. Let's hope it continues, I see no reason for it not to.

In my opinion, the US situation is a simple matter of maths. The country is loosing money at an alarming rate, and is only able to carry on due to the crazyness of its creditors to keep lending. It has no chance of even making a profit with its current indebtedness, let alone repaying the huge debt load that has been accumulated over decades - in the private and public sector. The only way of paying off the debt is to tax the assets of all the citizens within the country, like Cyprus. Given that there are various other serious imbalances in the world, if there is a serious financial crisis or some other event that causes the debt markets to freeze up, it's possible that the citizens may be forced to pay up - ala Cyprus. For me, this is one of the scenarios that could see wide adoption of bitcoin.

I relate to the Austrian school, but one of the criticisms of the Austrian school is that it is too simplistic. It looks at a general overview, without taking account of the huge, complicated picture of macro economics. I do accept that I have a limited knowledge of the situation and I'm sure that there are people who know alot more than me about the USA economic circumstance. However, I have considered all the different scenarios about the path the USA is on, and this one is the only one that seems to check all the boxes.

Someone in this thread mentioned that the history of fiat is a history of failure.  By that measure, the history of *everything* is a history of failure.  Gold-backed currency, in particular.  As extinct today as the dinosaur.  

It is today. But you're talking about a relatively short period in history when it has been disregarded (last 60 years) vs. hundreds of years preceding this, when it was used successfully. Not sure what you mean by history of *everything* is a failure, please clarify.

The doomsday prophets of this forum, the ones prognosticating the end of fiat, back up their soothsaying with examples of economic failure.  How absurd to assume, then, that exchanging one currency for another would somehow solve the problem.  Economic collapse is not undone by swapping bad money for good.
 

Fiat is totally different to the way gold money works. It's not absurd at all.

Economic collapse is not undone, but it can be solved by fixing the problems that caused it. IMO, since the last crisis very little was fixed. I don't believe it was *just* loose regulation that caused the housing crisis.

I'm sorry if Im a doomsday prophet, I kind've regret posting a thread called 'The end is near'. I would wipe it if there wasn't so much attention to it. However, in my opinion the majority of people continue to believe a lie about what's going on in the western world, a lie which is perpetuated by those who have an interest in people believing it. There are many more people with an interest in the mass population believing this lie, than there are people with an interest in people believing the truth. Most of the people who like people to believe the truth are people selling gold, silver or pumping currencies like bitcoin. These people are in a huge minority compared to the established elite who would prefer people to believe that a "recovery" is underwzy. I believe that it is only a matter of time before the truth reveals itself, unfortunately it will probably be after those responsible have left office.

Once again, I - and the other prophets - may be wrong about the situation. Maybe things are getting better and debt will eventually be repaid. However, looking back on history, it is unfortunate that things never proceed as straightforwards as this and, unfortunately, when countries are in the economic situation we are in right now, sooner or later there is usually a serious crisis.

[crumbs]

...

What exactly does US national debt mean to me, Joe consumer?  My standard of living hasn't gone down as the debt has gone up.  It's in no one's interest to call in the debt.  What do you see happening in case US defaults?  
People are impressed by exponential charts -- "unsustainable" is a word often used.  Population growth is exponential -- economy has to grow on an exponential curve *just to keep even* with human population.  You like scary charts?  Here:

Match this with economy predicated on linear growth.

Ahhh. Yes, of course it's not so simple. You see, you missed out the graph showing an exponential increase in human technology and innovation, and therefore an exponential decrease in the use of natural resources by each individual person. Let's hope it continues, I see no reason for it not to.

Absolute nonsense.  What are you talking about?  Which natural resources?  Oil?  Coal? livingspace? (oh lawdy, i almost fell into Godwin's law on that one )wut?  Charts plz.

In my opinion, the US situation is a simple matter of maths. The country is loosing money at an alarming rate, and is only able to carry on due to the crazyness of its creditors to keep lending.

You understand that since the money it is losing is its own fiat, "losing money" is meaningless -- we can print moar!

It has no chance of even making a profit with its current indebtedness, let alone repaying the huge debt load that has been accumulated over decades - in the private and public sector.

Saying that US has no chance of making a profit is as absurd as saying US is losing money.  See "losing money" above.

The only way of paying off the debt is to tax the assets of all the citizens within the country, like Cyprus.

Or continue to accrue debt. 

Given that there are various other serious imbalances in the world, if there is a serious financial crisis or some other event that causes the debt markets to freeze up, it's possible that the citizens may be forced to pay up - ala Cyprus.

R U cerial?  Who will do the forcing?  The countries US is in debt to?

For me, this is one of the scenarios that could see wide adoption of bitcoin.

What will that solve?  "We no longer use dollars, we swapped them for bitcoinz!  We owe you dollars, not bitcoinz, so we owe you *NOTHING!!11!*   Hahaha!"

I relate to the Austrian school, but one of the criticisms of the Austrian school is that it is too simplistic. It looks at a general overview, without taking account of the huge, complicated picture of macro economics. I do accept that I have a limited knowledge of the situation and I'm sure that there are people who know alot more than me about the USA economic circumstance. However, I have considered all the different scenarios about the path the USA is on, and this one is the only one that seems to check all the boxes.

Someone in this thread mentioned that the history of fiat is a history of failure.  By that measure, the history of *everything* is a history of failure.  Gold-backed currency, in particular.  As extinct today as the dinosaur.  

It is today. But you're talking about a relatively short period in history when it has been disregarded (last 60 years) vs. hundreds of years preceding this, when it was used successfully. Not sure what you mean by history of *everything* is a failure, please clarify.

The same thing you mean when you say that fiat is a failure.  Only wait...  We still use fiat -- i can buy a pack of smokes & fill up my car with it right now.  Gold standard has been abandoned, like laser disks, floppy disks & VHS tape.  Failed.  Served us fine 'till getting the boot.

The doomsday prophets of this forum, the ones prognosticating the end of fiat, back up their soothsaying with examples of economic failure.  How absurd to assume, then, that exchanging one currency for another would somehow solve the problem.  Economic collapse is not undone by swapping bad money for good.
 

Fiat is totally different to the way gold money works. It's not absurd at all.

Economic collapse is not undone, but it can be solved by fixing the problems that caused it. IMO, since the last crisis very little was fixed. I don't believe it was *just* loose regulation that caused the housing crisis.

If you're concerned about the housing crisis, having fiat money in play had nothing to do with it.  The same thing could have been done with gold-backed money or even bitcoin.  Fractional reserve lending is not dependent on fiat or even inflationary currency.  Please explain why switching to bitcoin would have prevented or will solve any of the housing market problems.

I'm sorry if Im a doomsday prophet, I kind've regret posting a thread called 'The end is near'. I would wipe it if there wasn't so much attention to it. However, in my opinion the majority of people continue to believe a lie about what's going on in the western world, a lie which is perpetuated by those who have an interest in people believing it.

I think you'll find that true with all lies

There are many more people with an interest in the mass population believing this lie, than there are people with an interest in people believing the truth. Most of the people who like people to believe the truth are people selling gold, silver or pumping currencies like bitcoin.

No, those are the people trying to make money.  "Selling" is the clue you've missed

These people are in a huge minority compared to the established elite who would prefer people to believe that a "recovery" is underwzy. I believe that it is only a matter of time before the truth reveals itself, unfortunately it will probably be after those responsible have left office.

Once again, I - and the other prophets - may be wrong about the situation. Maybe things are getting better and debt will eventually be repaid. However, looking back on history, it is unfortunate that things never proceed as straightforwards as this and, unfortunately, when countries are in the economic situation we are in right now, sooner or later there is usually a serious crisis.

What countries were in the economic situation we (US?) are in today?

[semaforo]

 
   That was a lot of information exchanged above... very interesting discussion. Just one point stands out to me.

  You say the US debt is unsustainable and that the maintenance of this debt will make the US as an entity unprofitable. The way I see it, the US is still in a dominant position only due to the "Too big to fail" principle. The debt is being serviced by expansion of the money supply, and hoarding+artifically high demand for dollars due to status as world reserve currency and oil being denominated in dollars+china keeps buying US bonds because if they stop their biggest export market will collapse leading to massive unemployment and insurrection is keeping inflation from getting out of control.

In other words, everyone who has dollars, from the Chinese government to Congolese diamond miners to retirees, is being scammed.

    Inflation is no problem for the US- they can pay of debts with freshly minted money, and the resulting inflation just means that the remaining debt is less valuable in real terms. So if the US has 80 billion tons of soya in debt, worth, say, 8 trillion dollars, and they expand the money supply by 1 trillion dollars, devaluing the currency by 10%, they now have 7 trillion in debt, but since a dollar now buys 10% less soya, they only owe 63 billion tons of soya. In other words, by paying debt down by 1 trillion NOMINAL dollars, they paid down 1.7 trillion in REAL dollars. The people who have dollars, aka China, lose, and the people who OWE dollars, aka the US, win.

       Of course, the poor lose too since food, heating, gas get more expensive. The rich don't care, because by virtue of being rich they already have unlimited lines of credit based on their assets.

       Bitcoin is like the valve on the pressure cooker that keeps the whole thing from blowing. Yeah, that's right, bitcoin could prevent world war 3 from happening. I said it. There.

   

     

[crumbs]

 
   That was a lot of information exchanged above... very interesting discussion. Just one point stands out to me.

  You say the US debt is unsustainable and that the maintenance of this debt will make the US as an entity unprofitable. The way I see it, the US is still in a dominant position only due to the "Too big to fail" principle. The debt is being serviced by expansion of the money supply, and hoarding+artifically high demand for dollars due to status as world reserve currency and oil being denominated in dollars+china keeps buying US bonds because if they stop their biggest export market will collapse leading to massive unemployment and insurrection is keeping inflation from getting out of control.

In other words, everyone who has dollars, from the Chinese government to Congolese diamond miners to retirees, is being scammed.

Perhaps "scammed" is not the right word.  How about "complicit"?  You're not suggesting that Chinese government is ignorant of the facts you posses, or that your reasoning is news to them?  Status quo is simply in everyone's best interest, once all things are considered.  Granted solutions to problems like the Prisoner's Dilemma & the Keynesian Beauty Contest are intuitively unsatisfying, but they're all there is. (i think those problems are handy models for modeling many aspects of finance, if the last sentence made you think "wtf?")

    Inflation is no problem for the US- they can pay of debts with freshly minted money, and the resulting inflation just means that the remaining debt is less valuable in real terms. So if the US has 80 billion tons of soya in debt, worth, say, 8 trillion dollars, and they expand the money supply by 1 trillion dollars, devaluing the currency by 10%, they now have 7 trillion in debt, but since a dollar now buys 10% less soya, they only owe 63 billion tons of soya. In other words, by paying debt down by 1 trillion NOMINAL dollars, they paid down 1.7 trillion in REAL dollars. The people who have dollars, aka China, lose, and the people who OWE dollars, aka the US, win.

Nicely put.  +1.
 

       Of course, the poor lose too since food, heating, gas get more expensive. The rich don't care, because by virtue of being rich they already have unlimited lines of credit based on their assets.

The thing is, the poor don't have savings (my definition of poor), so as long as their income matches inflation, their living standard remains the same.  In other words, if a gallon of milk costs double of what it did a year ago, and wages are also doubled, the paycheck buying power remains the same. 

       Bitcoin is like the valve on the pressure cooker that keeps the whole thing from blowing. Yeah, that's right, bitcoin could prevent world war 3 from happening. I said it. There.

How so?

[CurbsideProphet]

I love my Euros Regardless what many people say - it's the second strongest currency in the world, it gives the holder accept to the biggest market of the world, its strength makes wares from all over the world cheap for euro-holders, cause everybody wants to give his goods against this lovely euro. So you can pay with them in a lot of non-euro countries, because everybody wants it. It's geat, and it's not gonna die, and even if I love and have Bitcoins, the death of the Euro would do really big harm for me and for a lot of people I love, so even in my dirtiest Bitcoin-dreams I don't wish it.

But you don't have to think in this terms: Euro die, Bitcoin live. It's no zero sum game, where one succeeds and the other fails.

What's the problem to have two currencies?

I expect Bitcoin to works better than other currencies in the following fields:
a) something like gold (it is already)
b) the great currency of the internet making the cyperspace the largest free trade zone of the world
c) a tool to overcome currency-crisis

Nothing of this conflicts with the glory of the Euro

There's nothing wrong with two currencies, it's just that the Euro is flawed.  It's far too fragmented in terms of policy and too many serial defaulting countries were let in, which makes it very easy to cause a systemic crisis.  Portugal, Italy, Greece, Ireland, and Spain are all on very shaky ground and the EU and ECB do not have the capacity nor the authority to step in as a lender of last resort like the Fed.  Read up on the number of times these countries have defaulted, do you honestly think it won't happen again?  There's a reason the UK stayed away from the Euro.  If it weren't for countries like Germany propping the Euro up, it would have collapsed by now.

[tabnloz]

 
   That was a lot of information exchanged above... very interesting discussion. Just one point stands out to me.

  You say the US debt is unsustainable and that the maintenance of this debt will make the US as an entity unprofitable. The way I see it, the US is still in a dominant position only due to the "Too big to fail" principle. The debt is being serviced by expansion of the money supply, and hoarding+artifically high demand for dollars due to status as world reserve currency and oil being denominated in dollars+china keeps buying US bonds because if they stop their biggest export market will collapse leading to massive unemployment and insurrection is keeping inflation from getting out of control.

In other words, everyone who has dollars, from the Chinese government to Congolese diamond miners to retirees, is being scammed.

    Inflation is no problem for the US- they can pay of debts with freshly minted money, and the resulting inflation just means that the remaining debt is less valuable in real terms. So if the US has 80 billion tons of soya in debt, worth, say, 8 trillion dollars, and they expand the money supply by 1 trillion dollars, devaluing the currency by 10%, they now have 7 trillion in debt, but since a dollar now buys 10% less soya, they only owe 63 billion tons of soya. In other words, by paying debt down by 1 trillion NOMINAL dollars, they paid down 1.7 trillion in REAL dollars. The people who have dollars, aka China, lose, and the people who OWE dollars, aka the US, win.

       Of course, the poor lose too since food, heating, gas get more expensive. The rich don't care, because by virtue of being rich they already have unlimited lines of credit based on their assets.

       Bitcoin is like the valve on the pressure cooker that keeps the whole thing from blowing. Yeah, that's right, bitcoin could prevent world war 3 from happening. I said it. There.

   

     

But what about if the Chinese use some of their trillions in foreign reserves to buy US assets, thereby injecting more US dollars into circulation?

At trillions of dollars the inflation could be damaging, no? A crippled dollar leads to loss of trust which is one of the best things it still has going for it.

It's a threat that is common written of on the interwebs, that if the US continues to debase then China should just let its reserves destroy the US economy through inflation. I do realise that this action benefits no one but I have read that china is buying up Big US companies recently??

[crumbs]

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But what about if the Chinese use some of their trillions in foreign reserves to buy US assets, thereby injecting more US dollars into circulation?

At trillions of dollars the inflation could be damaging, no? A crippled dollar leads to loss of trust which is one of the best things it still has going for it.

It's a threat that is common written of on the interwebs, that if the US continues to debase then China should just let its reserves destroy the US economy through inflation. I do realise that this action benefits no one but I have read that china is buying up Big US companies recently??

Do you mean like Fannie Mae & Freddie Mac?  Are you talking about THIS or something else?

[semaforo]

But what about if the Chinese use some of their trillions in foreign reserves to buy US assets, thereby injecting more US dollars into circulation?

At trillions of dollars the inflation could be damaging, no? A crippled dollar leads to loss of trust which is one of the best things it still has going for it.

It's a threat that is common written of on the interwebs, that if the US continues to debase then China should just let its reserves destroy the US economy through inflation. I do realise that this action benefits no one but I have read that china is buying up Big US companies recently??

   I don't know that much about it to be honest, but I do get a hunch that China is trying hard right now to end the dollar as world reserve currency and avoid getting stuck with a pile of worthless dollars. There's definitely been more and more Chinese buying up real estate in the US (first hand experience), there's been the controls on the Yuan lifted so it can be held in foreign reserves and purchased by parties outside of China, and there's been the dropping of the dollar in trade in the Western pacific region in favor of the Yuan... of course, this is all happening very slowly and quietly because any sudden move could trigger panic selling.

    If the dollar does go into free fall it could cause untold damage to global productivity as things get reorganized, but with a bitcoin standard, the dollar could just become just a currency on equal footing with the Euro, Yen, Yuan and Pound, that is, a currency that has some relevance in foreign reserve holdings.

[johnyj]

I suggest everyone to read that story about John Law's paper money scheme 300 years ago, it is the origin of the central banks and fiat money today
https://bitcointalk.org/index.php?topic=263267.0

The main reason that his grand scheme failed is because people still had other alternative payment medium like gold and silver coins. When there was an over supply of fiat money, people just ran for gold/silver coins

Currently the fiat system did not fail because the fiat money is the only medium of transaction and its flow are carefully controlled to not cause inflation. Even you know that FED has printed 4x more money since 2008, you have to use dollar anyway because you have no other alternative

It works like this: 99% of newly printed money goes to those 1% people, who in turn hoard them and keep the inflation in check (Offshore bank accounts holds amount of USD equals to 2x US GDP )

On the other end of the spectrum, are those people who have to work hard but never be able to payback the debt which is used to create those new money

How come such kind of a slavery system could continue to operate if everyone knows how it works?

[johnyj]

...Just look at the U.S. national debt since gold standard abolished [loosely exponential chart]
...

What exactly does US national debt mean to me, Joe consumer?  My standard of living hasn't gone down as the debt has gone up.  It's in no one's interest to call in the debt.  What do you see happening in case US defaults?  
People are impressed by exponential charts -- "unsustainable" is a word often used.  Population growth is exponential -- economy has to grow on an exponential curve *just to keep even* with human population.  You like scary charts?  Here:

Match this with economy predicated on linear growth.

Someone in this thread mentioned that the history of fiat is a history of failure.  By that measure, the history of *everything* is a history of failure.  Gold-backed currency, in particular.  As extinct today as the dinosaur.  

The doomsday prophets of this forum, the ones prognosticating the end of fiat, back up their soothsaying with examples of economic failure.  How absurd to assume, then, that exchanging one currency for another would somehow solve the problem.  Economic collapse is not undone by swapping bad money for good.
 

http://www.npg.org/facts/world_pop_year.htm

Population increase average 1.2% per year and the rate is decreasing year over year, but the US debt increase average 9% per year and the rate is accelerating year over year. Of course average Joe will always be the last one to feel the problem, and when he did its already too late

And, exchanging one currency for another is the result of the collapsing of current monetary system, not the remedy